Multifamily Investment in 2019: Finding Opportunities in DC
- Feb 26, 2019
Population and job growth in Washington, D.C., fueled the expansion of the metro’s multifamily sector, despite a booming supply of housing units. Occupancy rates for multifamily communities averaged more than 95 percent last year and continued to whet developers’ appetite to build more. Upwards of 27,000 units are currently underway in the area, according to Yardi Matrix data, with another 55,000 units in planning stages.
KETTLER is one of the largest owners, developers and managers of multifamily properties in the D.C. metro, where it has acquired, developed or renovated about 20,000 units. While the company is looking to expand in Georgia, Florida, Ohio and Texas, the bulk of the firm’s portfolio is in or near the nation’s capital, where it has been active throughout the past four decades.
Bob Kettler, owner & CEO of KETTLER, discusses the opportunities across D.C. and how the firm has used its knowledge of the market in conjunction with like-minded technology solutions to find success.
Considering the large number of multifamily projects underway across the D.C. metro, where can the best development opportunities be found?
Kettler: We see the best opportunities with projects that have unique factors, which support our financial metrics or have complex design or entitlement requirements. Based on our extensive regional presence in the Washington, D.C., area, we have seen certain submarkets show impressive rent growth in the past year even with one of the country’s highest supply pipelines.
Through these insights we have identified areas in northeast Washington, D.C., and Northern Virginia, along the silver and orange metro rail lines that still have metrics favorable for new development. For example, we built a podium building—Highgate at the Mile—in the Tysons submarket which has seen predominately high-rise concrete construction. This allowed us to offer product comparable in amenities and unit finishes at a more competitive price point due to lower construction costs. This project had one of the fastest lease-up paces in our company history.
How are multifamily investors and developers addressing the significant demand for affordable housing in the area?
Kettler: Developers are seeking more acquisition/rehab opportunities to upgrade existing older apartment communities. The properties are generally well located and offer an opportunity to provide quality housing at a lower rental rate. With new development, we provide the percentage of affordable housing that is required by code with each jurisdiction. In cases where community benefits are offered for increased zoning, affordable housing is usually increased in order to provide more affordable units for the market.
What are some of KETTLER’s operations or processes that give it an advantage across its portfolio?
Kettler: KETTLER’s vertical integration of services affords us the opportunity to optimize resources across our platform, while creating efficiencies in our service operations. Our integrated service delivery model offers a greater view into our operations, thus allowing us to:
- identify opportunities for cost savings and streamlining operations
- have greater clarity within our business plans in ensuring continuity and synergies across our operations
- ensure consistency in our reporting and data collection structures
One example of our competitive advantage is our centralized contract management system, which allows us to leverage KETTLER’s buying power to reduce property expenses and improve NOI.
How has technology affected KETTLER’s multifamily management business and how is the firm staying ahead of the curve?
Kettler: Technology has created competitive opportunities for us to better serve our consumers, while creating efficiencies within our operations. The key to this execution is to develop strategic partnerships with third-party solution providers. The marketplace is crowded with strategic solutions. However, we methodically partner with resources that share our philosophy and have unique capabilities in executing our differentiated strategies. Through these relationships, we are able to create relevant experiences for audience engagement, while creating efficiencies in our delivery workflow. In addition to that, we use market intelligence to maintain a compass on our consumer needs, in directing our technology partners.
An example of one our strategic partnerships is with Reach Local, a global SEO/SEM company. We moved our in-house digital services operations to Reach Local. Through this engagement, we saw a threefold increase in our SEO/SEM strategy’s performance. Additionally, through this operational realignment we were able to optimize our internal team members’ roles in providing more robust marketing servicing.
Tell me about a recent acquisition you were involved in. How is it indicative of the market’s trends?
Kettler: At the end of the third quarter last year, we acquired Westerly at Worldgate, which is located in the Dulles Toll Road Corridor in Herndon, Va. Westerly is a 25-year-old garden walk-up community where the previous owner had done a very successful renovation on 50 percent of the units, and we had the opportunity to come in and finish out the renovation program.
Typically, we are very hesitant to come in and finish a renovation due to diminishing returns, but we felt we had the opportunity to differentiate the finish package to provide an alternative that would appeal to a different renter profile and potentially drive a higher ROI. In addition, due to our development activities nearby, we are very familiar with the planned improvements in the near term due to the arrival of the Silver Line. We were aware of a pedestrian connection that is planned, which will significantly reduce travel time to the metro from the property. In today’s competitive marketplace, we are being very selective in where we transact and ultimately look for reasons for conviction that the opportunities we select to dig into have the potential to outperform.
In what ways did the recent federal government shutdown impact the multifamily sector, particularly in the D.C. area?
Kettler: The greatest impact we saw was in operational preparedness. Meaning, we spent a great deal of time trying to ensure that we had policies in place to support our residents. Our residents are very important to us and ensuring that they know we care and are here to support them in time of crisis, was our priority.
Image courtesy of KETTLER